THE CURRENT conditions for management buy-outs continue to be some of the most favourable ever seen and entrepreneurs are wasting no time acting on them. The last 12 months have not only seen a strong level of investment into the buy-out market but also a surge in buy-out activity, with a record number completed.

MBOs are providing business owners with a wider choice when considering their exit options and have yielded new opportunities for their future successors. But staging a MBO – where a business is essentially sold to its incumbent managers – remains one of the most complex of corporate finance transactions.

On the face of it, passing the reins of the business to a management team shouldn’t be too taxing – after all, they have an intimate understanding of the business already. But the legal and financial red tape surrounding an MBO transaction can make it extremely complicated.

It is absolutely crucial that you seek expert advice if you are thinking of embarking on an MBO but here is an outline ten-point plan to help you to get started:

Management team
You don’t need to be rocket scientists, but should be sound, well balanced and capable of delivering the plan. Buy-out investors back management teams and are often quoted saying ‘Better to back a good management team in an average business than a good business with a poor management team’.

Smoke and mirrors won’t work here. If your plan has no commercial substance, then your potential backers will do the disappearing act.

It takes two to tango. You might have all the moves in the world but without a willing seller you’ll be left dancing round your handbag.

Don’t forget who’s the boss. At the appropriate time, make sure you have the owner’s permission before spending company time pursuing MBO goals.

Are you prepared to put your money where your mouth is? You will be expected to invest a meaningful level of personal wealth to show your commitment to the deal. This does not mean you need to be a millionaire but a good rule of thumb for the minimum amount is the equivalent of one year’s salary.

Financial projections
Think positive spin rather than work of fiction. Your business forecast shouldn’t be too far-fetched but must provide a potential funder with something to catch their eye. Don’t forget that it will be subject to due diligence.

Is your team all chiefs and no Indians? Make sure you have a clear leader to unite the team.

This is not something done on a wing and a prayer. Do your homework and prepare to be tested.

Stick to what you know best and leave the deal process to the experts. Appointing expert advisors also sends out a clear message that you are serious about your intentions.

Get away from it all for a short time before you start the journey. The MBO process can be very gruelling so get some rest while you can. At the very least, it will give you quality time to prepare for a successful transaction.

Contcat Sean McLaughlin at Baker Tilly’s Milton Keynes office on 01908 687800 or by e-mail at [email protected]

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